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Weekly Gold and Silver Market Recap for Aug 10, 2012

As the week comes to a close, there is much uncertainty in the gold market. On Monday there was a rise in price based on higher unemployment rates in the U.S.A. and more talk about the possibility of another round of monetary easing by the Federal Reserve. “There is still room for easing if it is required, and there is still a perception that it may be required,” said David Jollie, an analyst with Mitsui Precious Metals. Then on the very next day reports of better than estimated corporate earnings sent the U.S. dollar up and gold prices down. “The fear of things collapsing is going away,” said Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, N.Y. “The recession, which everyone was concerned about a month ago, is not going to happen.” As of Friday there was another report that raised the gold prices back from the mid-week dip, from an unlikely source, the United States Agriculture Department. “We have seen Gold running higher this afternoon. I think this is a spillover effect from the USDA crop report out today, which is confirming fears of a reduction in production,” said Ole Hansen, a senior commodity strategist at Saxo Bank. “This is indicating that we could see continued high prices for some of these key crops in the months ahead. And especially in some emerging economies, this could lead to higher inflation towards the end of the year.”

Europe’s financial issues keep piling up:

The financial crisis in Europe has been well documented for many months now. With every passing week there are many questioning if there is any chance of recovery or if the Euro is on its last leg. This week did nothing to quell that negative outlook. One of the major banks in the U.K. was linked to illegal transactions with Iran, which is under major U.N. sanctions. If this is found true, the bank could lose its New York banking market license. Analyst Gareth Hunt said, “Some people were walking around under the illusion that Standard Chartered was the world’s first riskless bank, and it’s not. We’ve discovered that Standard Chartered is a mortal bank, as they all are.” Standard Chartered was one of the least affected global banks during the global financial crisis. This credibility hit, coming when banks need to step up and lend during globally uncertain times, is alarming. Another issue in England is the rocky relationship with the Eurozone. While they do not use the official currency of the Euro, they are a member of the European Union. Britain is officially thinking about exiting from the European Union. There are concerns on how the financial markets would be affected if the U.K. leaves the EU. Financial services group Nomura issued a report stating, “We believe, increasing possibility of either a looser U.K. relationship with the EU or a U.K. exit is bound, in our view, to raise both economic and political concerns, including in financial markets.” One constant positive in Europe has been Germany. The country has been able to avoid the financial shortcoming of the other nations in the area. As it has been said before, “nothing last forever,” and Germany’s solid economy is not an exception. Joerg Kraemer, chief economist at Commerzbank, said, “The German economy is losing momentum — there’s no doubt about that — and in the third quarter the economy will shrink compared to the second quarter. Things will go downhill from here. The German economy is not faring as badly as the rest of the eurozone, but it can’t disconnect itself, especially as growth in China has slowed and continues to do so.”

The United States gives mixed signals:

Reports in the United States are showing that productivity in the workforce is down. One expert said he believes that is the best case scenario at this time. “The only reason 1.7 percent GDP growth can go with 1 percent jobs growth is because productivity growth is less than 1 percent,” said Robert Gordon, a Northwestern University economics professor. These numbers, while not ideal, have created a drop in unemployment benefits claims over the last year. The trade deficit narrowed to the smallest gap in nearly two years, and weekly jobless claims fell after economists expected an increase. The four week moving average of the jobless claims, however, increased slightly. Recently, good news for the American economy has worked the opposite way with Precious Metals, as good news makes the Federal Reserve less likely to institute another round of quantitative easing. Import prices in the United States fell unexpectedly in July, extending the streak to four months of declines. The decline in import prices could be one more reason for the Federal Reserve to ease monetary policy further. Historically, tools such as quantitative easing have been very supportive of Precious Metals prices. These reports are a good indication of why the gold market has stayed relatively flat this week. It’s better, then it’s worse, and then back to better. As for this week gold did exactly what the market dictated, it held steady.